Says Monopolistic Merger Limits Competition, Costs Taxpayers

Citizens Against Government Waste (CAGW) Thursday urged the Air Force against granting sole-source contracts for heavy satellite launches to United Launch Alliance (ULA), a joint venture between Boeing and Lockheed Martin. Regulators are expected to rule on the merger shortly and the companies are now jointly negotiating for the third round of launches under the $32 billion Evolved Expendable Launch Vehicle (EELV) program, which will cover 23 missions lasting through 2011 and beyond. Despite the cost overruns, schedule delays, and scandals that have plagued EELV, there is no legal requirement for the Air Force to consider additional bidders that may emerge before 2011.

"The structure slams the door on any possible competition," CAGW President Tom Schatz said. "The ULA locks up all contracts, ensuring high costs for taxpayers and stifling innovation."

The ULA will provide national security launch services for the Department of Defense (DOD) and some NASA missions, but Boeing and Lockheed Martin will continue competing for private launches. The FTC and DOD have questioned the companies' claim that consolidation will save $100 million to $150 million per year. The EELV program was implemented in 1995 to give the federal government "assured access" to space by keeping two domestic providers viable. The first round of contracts was awarded to the same companies in 1998 with the expectation that a strong commercial launching market emerge. However, the companies failed to adjust to market conditions and the government has assumed an increasing share of the risk and cost of the launching operations. If approved, the ULA will benefit from $650 million in government subsidies for infrastructure and about $100 million per launch.

"The Boeing tanker lease scandal showed that depending on a small number of contractors ties the government's hands in cases of corporate malfeasance. This consolidation leaves the government with no alternatives if the companies waste tax dollars as they have done in the past," Schatz continued.

A July 2005 report from the Government Accountability Office referred to the DOD's space system acquisition efforts as "dismal." EELV's unit cost has grown 81 percent. During the first round of bidding seven years go, Boeing obtained proprietary information from Lockheed Martin and the resulting investigation and suspension cost taxpayers $230 million. The House version of the fiscal 2006 Defense Appropriations bill included language requiring future EELV contracts to be negotiated on an annual basis because "multi-year contracts are no longer in the interests of taxpayers."

"The Air Force is propping up failing ventures with lucrative long-term contracts, forcing taxpayers to fund the EELV boondoggle for years to come. To keep the US space launching industry competitive, the Air Force should do whatever it can to open the field to new competitors," Schatz concluded.

FMI: www.cagw.org